Renting, blowing up foreclosures not a bad idea

Commentary: Administration should have been doing this all along

WASHINGTON (MarketWatch) — The Obama administration on Wednesday took a step to what they should have been doing all along: renting, or even demolishing, foreclosed homes.

At issue is the glut of foreclosed properties the U.S. government owns via the bailed-out Fannie Mae and Freddie Mac, which are still the two main players in the housing industry. At the end of the second quarter, Fannie Mae and Freddie Mac owned more than 200,000 single-family foreclosed properties — and that portfolio will grow, even if legal fights delay that process by another quarter or two. See related story.

That glut of distressed properties available, which account for one in three sales of existing homes, has helped limit both prices and activity in the market. CoreLogic reports that home prices on a 12-month basis fell 6.8% in June, but the fall was just 1.1% when distressed sales are excluded.

The number of distressed properties for sale (by everyone, not just the government) can’t obviously be reduced to zero, not with unemployment at 9.1%. But steps to reduce the foreclosed inventory would certainly give a big lift to the dead-in-the-doldrums industry.

The goal of a preliminary effort announced Wednesday is to find private investors who would be willing to own properties, and in turn rent them, sometimes to the occupant who defaulted. It even would countenance, “in certain instances, demolition,” according to a document published today.

Of course, the government would need to find partners in the private sector, but that shouldn’t be too difficult. Partnering with the feds often can be quite lucrative, as Fiat, for example, found out with its Chrysler investment.

While that opens the government to charges that it will leave money on the table, the current desperate times in the housing market — not to mention the $2.9 billion Fannie Mae loss and the $2.1 billion Freddie Mac loss the firms just reported — should at least dampen that argument.

At this point, almost any initiative in the housing market (save another tax credit!) would be welcome, and this one looks like it could even plausibly succeed.

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